Bets are rising that Pakistan will default on its debt just as it starts to revive investor interest with a reduction in terrorist attacks.
Credit default swaps protecting the nation’s debt against non-payment for five years surged 56 basis points last week amid the global market sell-off, the steepest jump after Greece, Venezuela and Portugal among more than 50 sovereigns tracked by Bloomberg. About 42 percent of Pakistan’s outstanding debt is due to mature in 2016 -- roughly $50 billion, equivalent to the size of Slovenia’s economy. The bulk of that is in local currency.

Prime Minister Nawaz Sharif has worked to make Pakistan more investor-friendly since winning a $6.6 billion International Monetary Fund loan in 2013 to avert an external payments crisis. The economy is forecast to grow 4.5 percent, an eight-year high, as a crackdown on militant strongholds helps reduce deaths from terrorist attacks.

"Pakistan’s high level of public debt, with a large portion financed through short-term instruments, does make the sovereign’s ability to meet their financing needs more sensitive to market conditions," Mervyn Tang, lead analyst for Pakistan at Fitch Ratings Ltd., said by e-mail.

Right now, he said, there’s not much reason to panic. Pakistan’s external liabilities are "relatively modest," foreign-currency reserves have risen, the IMF is ready to help meet maturing loans and Chinese investment in an economic corridor is on its way, Tang said.

Pakistan has just $4 billion of external debt coming due in 2016 and "does not face any difficulty in respect of its debt servicing obligations," the Finance Ministry saidon Mondayin an e-mailed response to questions. The government doesn’t "feel any cause for concern with regards to refinancing its domestic debt," it said.

Public debt risk indicators have come down over the past two years, while the CDS is on a downward trajectory compared with 2008, the Finance Ministry said. Pakistan has a medium risk of default over five years, according to Bloomberg assessments.

Pakistan is committed to successfully implement its IMF macroeconomic stability program, the Finance Ministry said in a statement Feb. 1. Sharif’s administration has a “quite good" chance of completing the program, IMF mission chief Harald Finger said last month.

Since Sharif took the IMF loan, Pakistan’s debt due by end-2016 has jumped about 79 percent. He’s also facing resistance in meeting IMF demands to privatize state-owned companies, leading to a strike this month at national carrier Pakistan International Airlines Corp.

The bulk of this year’s debt, some $30 billion, is due between July and September, and repayments will get tougher if borrowing costs rise more. The spread between Pakistan’s 10-year sovereign bond and similar-maturity U.S. Treasuries touched a one-year highon Thursday.

According to Bloomberg calculations 17 percent -- or $8.3 billion -- of Pakistan’s 2016 debt repayments will need to be in foreign currency. This comprises $7.8 billion of loans, the bulk of which is a 2008 bilateral loan from the IMF that’s due end-September and $500 million in bonds. The external requirement accounts for 40 percent of the nation’s $21 billion in foreign-exchange holdings.

That stockpile, however, isn’t airtight. While it increased by more than 55 percent last year -- the steepest rise in Asia -- more than half consists of debt and grants that could leave the country quickly if global risk appetite worsens. Outflows would weaken the rupee, a currency that is estimated by the IMF to be as much as 20 percentovervaluedeven though it’s proved remarkably stable amid the recent market turmoil.

Investors should expect volatility in bonds and pressure on the rupee this year, according to Mustafa Pasha, head of investments at Lakson Investments Ltd., which manages $200 million of Pakistani stocks and bonds.

While the plunge in oil prices helped the government last year, predicting the outlook would be like “reading the tea leaves," he said by phone from Karachi.

Another worry, as ever in Pakistan, is political stability. The military has ruled the country for most of the time since independence in 1947, and General Raheel Sharif -- no relation to the prime minister -- has boosted the army’s image with a campaign to root out terrorists who massacred 134 children in 2014.

While Raheel Sharif has said he plans to retire when his term ends in November, the risk of political upheaval is ever present. Pakistan has the 10th highest political risk score among more than 120 countries in the Economist Intelligence Unit ranking, worse than Egypt and Iran.

lol and pakis dont use their bhik for normal things like education,infrastructure,medical infrastructure,economy,industry etc.
they use their bhik for only these things
HINDUSTAN TERE TUKDE HONGE INSHALLAH INSHALLA
and
KASHMIRE BANEGA PAKISTAN
and
WE WILL BUILD OUR NUCLEAR STOCKPILE EVEN IF WE HAVE TO EAT GRASS.

thing is there are always people to fill the katora because pakis serve everyone's interests.

Debt of India is around 450B$ but we had 350+B$ of reserves which is even greater than your GDP of 250B$ and Nett International position with more than 800B$(that means reserves+corporate assets and individual assests Outside India)

Debt of India is around 450B$ but we had 350+B$ of reserves which is even greater than your GDP of 250B$ and Nett International position with more than 800B$(that means reserves+corporate assets and individual assests Outside India)

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It doesnt matter; our debt is good for our size and GDP; also our GDP is actually 272.

No, our debt is actually much lower compared to the debt of developing countries - yet articles like these make people think that Pakistan is broke or economically unstable.

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Its not about the value of debt but the country's ability to service it...

Loan analogy : If I have Loan of $100 payble in 3 years where as my income is $60, but I can service it in 3 years at 2% interest... Given that I will keep earning minimum of $60 so that I pay $35.34 each year approx. and pay for my own expenses. then its a serviceable debt.

But say if my income falls Year on year, and my own expenses rise, My capacity to maintain living standard while paying debt falls, so I go for Cost cutting, (money usually depreciates over time like any other commodity so costs are always rising). But Austerity, or cost cutting can go only so far, even if after paying my own costs, I cannot pay the debt and default then bank swill not be willing to give more credit. The amount defaulted will attract even more interest, and new loans even more, so that is what is in store, "IF" Pak defaults.

Look at the payble debt, Your Country's own expenses, and income if there is enough liquidity then it will. Paying high loan back once is better than falling in debt trap. Numbers are there in the public domain, and all you need is maths. If Pak Gov is able to abide by all conditions set by IMF then it will be able to pay them but it will have short term money constraints. If it fails then, hello Venezuela...

pakis are in debt since inception in 1947. Still they survived, thanks to their skills of blackmailing in the name of Islam to oil rich Arabs, who gave them free oil and $$$$$$ in the name of Islam against kufur India

and in the name of war on terror to amerika who gave them weapons and $$$$